Korea Is Primed for M&A Deals

By Kanga Kong and Isabella Steger

South Korea is likely to see a pickup in merger-and-acquisition activity this year, as its cash-rich companies shop for overseas assets and as the government is expected to renew efforts to unload state-held stakes now that December’s presidential election is over.

“The big story for this year will be outbound [deals],” said Daniel Sae-Chin Kim, a partner at U.S.-based law firm Paul Hastings LLP in Seoul. “It’s a good time for Korean corporations [to buy overseas assets] due to their strong balance sheets and some cheap valuations overseas, especially in Europe.”

Over the past decade, most South Korean companies have focused on organic growth following disappointing overseas buyouts in the 1990s. But now, faced with slowing earnings growth at home, conglomerates such as Samsung Group and LG Group are looking outward for acquisitions again, at a time when their brands are strong and the won’s gains have given them extra purchasing power.

The won rose 7.6% against the U.S. dollar last year and is expected to strengthen this year.

“What’s happening in the last few months is that more are looking at cross-border opportunities, particularly in Europe,” where a number of good brands are struggling with liquidity problems or distressed assets, said Steve Lim, chief executive of J.P. Morgan Korea.

For South Korea’s tech titans, the need to secure intellectual property and new technology is driving their quest for overseas assets Samsung Electronics in July bought the mobile-technology business of U.K.-based Cambridge Silicon Radio PLC for $310 million, and last month it said it purchased NeuroLogica, a U.S.-based producer of medical equipment, for an undisclosed sum. NeuroLogica was Samsung’s third acquisition since 2010 in health care, which the company sees as a new growth engine.

This week, Samsung Electronics also bought a 5% stake in Japanese stylus maker Wacom Co., which helped create the “S Pen” that comes with Samsung’s Galaxy Note. The price wasn’t disclosed.

Natural resources also are expected to continue to attract South Korean companies, Mr. Kim said. “There’s been a concerted move, supported by the government, to expand in the energy and resources sectors and become more self-sufficient,” he said.

Last month, for example, a consortium led by steelmaker Posco and Taiwan’s China Steel Corp. agreed to pay $1.1 billion for a 15% stake in a Canadian iron-ore mining company controlled by ArcelorMittal.

The deals won’t just be outbound, though. A number of Korean companies, from insurers to aircraft manufacturers, are expected to be put on the block this year.

ING Groep NV’s Korean insurance unit, ING Life Insurance, worth an estimated $2.1 billion, could be the first to go. ING has already renewed its effort to sell the company, people with knowledge of the process said last week. So far, private-equity firm MBK Partners along with Hanwha Life Insurance Co. and Kyobo Life Insurance Co., the nation’s second- and third-largest insurers by assets, respectively, have expressed an interest in ING Life, one of the people said. Spokesmen for all three companies declined to comment.

ING’s previous effort to sell ING Life fell short when South Korea’s KB Financial Group, after months of negotiations, withdrew its bid in December.

The presidential election’s conclusion will likely clear the way for a number of government stake sales, after billions of dollars worth of privatization deals were stalled in the run-up to the vote. President-elect Park Geun-hye takes office in late February, and her campaign pledge to provide greater social welfare programs—costing billions of dollars—could jump-start those stake sales, bankers say.

“Once the new government comes in, the privatization [process] will resume. The new administration will likely not have objections to it,” said J.P. Morgan’s Mr. Lim.

No doubt the government would love to unload its stake in Woori Finance Holdings, the country’s largest banking group by assets. It has tried and failed to sell its 57% stake in Woori—worth an estimated $5.2 billion—three times since 2010, with its most recent attempt collapsing in July.

The government has been unable to find a suitable domestic buyer, and foreign companies have shied away because of the extra scrutiny and criticism they often receive in South Korea’s financial sector.

Analysts and regional government officials are now talking about the possibility of a sale of Woori’s two regional banking units in separate deals before a sale of the Woori Finance stake.

Analysts also expect the government to try again to sell its stake in Korea Aerospace Industries, which is worth an estimated $940 million.

Previous attempts to sell the stake the nation’s sole aircraft manufacturer—in August and again in December—drew only one bidder each time. Under Korean law, any auction of a state-owned company’s assets must attract at least two bidders before it can proceed.

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